Share Price Reaction to Dividend Announcements and the Interaction with Earnings Announcements in the Malaysian Stock Market

Peng-Poi Yip

Mansor Isa

George W. Kester

Siew-Peng Lee

Abstract

This study examines the market reactions to dividend announcements andthe interaction with earnings announcements in the Malaysian stock market.Data was obtained for a sample of one thousand and eighty eight (1088)dividend announcements from firms whose shares were traded on theMalaysian stock exchange from 2004 to 2008. Abnormal returns werecalculated using the market model. The results are partially consistentwith the dividend information signalling hypothesis. There are positiveabnormal returns related to dividend increase and dividend unchangedannouncements, but insignificant for dividend decrease announcements.Combining dividend announcements with earnings announcements thattake place well before dividend announcements, we find that both earningsand dividends exert their influence independently on share prices.